Caterpillar Taxes: Company Used Swiss Haven, Says Senate Panel

Caterpillar, the world's largest manufacturer of construction and mining equipment, avoided paying $2.4 billion in U.S. taxes from 2000 to 2012 by shifting replacement parts sales to Switzerland, a congressional panel has claimed.

Caterpillar negotiated a low tax rate with Switzerland so the company can book taxable profits from replacement sales made by third parties under contract with the Peoria, Illinois-based company, according to Reuters.

"This is a prime example of a tax avoidance strategy, which is costing the U.S. Treasury billions of dollars," U.S. Sen. Carl Levin, chairman of the Senate Permanent Subcommittee on Investigations, said of the report on Monday.

The subcommittee reported that even though Caterpillar makes no replacement parts and has no warehouses in Switzerland, 85 percent of its parts business's profits went through the Swiss unit, paying a tax rate of four to six percent.

Julie Lagacy, vice president of Caterpillar's finance services division, argued in a prepared statement before a subcommittee hearing that the company's unit, called Caterpillar Sarl, or CSARL, has a sizable marketing presence in Geneva, Switzerland.

"CSARL is no mere shell, but rather a major operating company employing hundreds of personnel in Geneva," Lagacy said in her statement.

Lagacy also said in her statement, according to The Associated Press, that Caterpillar pays an effective income tax rate of 29 percent, among the highest for multinational manufacturers.

"Caterpillar takes very seriously its obligation to follow tax law and pay what it owes," Lagacy said in her statement. "Caterpillar's philosophy is that our business structure drives our tax structure. We comply with the tax laws enacted by Congress, by the states and by all of the many jurisdictions in which we conduct business."

Levin's subcommittee has also held hearings on the tax strategies of Apple Inc., Hewlett-Packard Co., and Microsoft Corp., according to Reuters.

"This (Caterpillar) investigation demonstrates just how shifting profits to a tax haven is not just the province of high-tech companies," Levin said.

U.S. Sen. John McCain of Arizona, the top Republican on the subcommittee, did not sign off on Levin's report, according to the AP.

Caterpillar had revenues of nearly $56 billion last year and hired nearly 52,000.